Pakistanis trade $19bn/yr in crypto, mostly via unofficial channels

LAHORE: Pakistanis have been trading $18.60 billion in cryptocurrency annually with almost 20 million users, which results in the flight of around $8 billion from the country via unofficial channels.

Cryptocurrency trading was declared illegal in Pakistan. However, according to Chainalysis – a block chain data platform - the volume of trade in different crypto coins in Pakistan was around $18-20 billion in financial year 2020-21.

As of October 2021, analyst estimates place the actual trading volume of cryptocurrency in Pakistan at $18.6 billion, seemingly offshored and currently residing in crypto-exchanges operating outside of Pakistan.

This was revealed in a discussion organised by Rain Financial Inc on Tuesday to sensitise the media about the dire need of regulating cryptocurrency trading in the country.

Rain Financial Inc Country GM Pakistan Zeeshan Ahmed along with Senior Marketing Manager Sheryar Khalid disclosed that this volume might be higher than the estimated 40 percent, and probably leaves the country via unofficial channels since the sector was not legally documented.

Pakistan was in dire need of foreign exchange, but was still losing around $8 billion via crypto trading, Zeeshan said, adding that “if the sector is regulated, the government can put checks on these transactions and route it from legal channels.”

The undocumented sector makes Pakistanis vulnerable to fraud while trading in cryptocurrencies and assets.

A regulated exchange would require Pakistanis to deposit cash into Pakistani bank accounts in order to be able to buy or sell crypto assets. Without regulations, exchanges do not report and/or deduct taxes on gains made on the exchange to the Federal Board of Revenue (FBR) or State Bank of Pakistan (SBP) per rules and regulations resulting in immeasurable losses to the exchequer.

Zeeshan mentioned that Rain held a round of meetings and discussions with the government institutions including SBP, FBR, Securities and Exchange Commission of Pakistan and others for introducing cryptocurrency trading regulations. However, the regulators have ‘capacity issues’. Elaborating, he said whenever a new system has to be evolved, there were issues of building capacity for new regulations and understanding the crypto assets.

“There is need to learn from countries that have already taken steps to regularise the cryptocurrency segment and benefitted from it,” Zeeshan added.

Additionally, the pace at which crypto was being adopted seemingly overnight by consumers in Pakistan and globally has forced regulators to catch up.

The challenge in Pakistan was how quickly the law follows the market’s adoption of crypto - Pakistan ranks 3rd/4th globally and usage was expected to boom exponentially.

“Finally, one of the challenges we have observed in other regions is the central bank and capital markets regulators effectively coordinating with other government stakeholders such as the IT and science sectors of the government. As finance and technology spaces have combined, multi-pronged approaches and agency coordination become a significant factor in developing regulations,” he added.